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TMI Blog2017 (12) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment of INR 2,82,48,956/- with respect to the international transaction rendered by the taxpayer U/S 92CA of the Income-tax Act, 1961. 2. The learned AO/TPO/DRP while proposing the adjustment has erred in: * Ignoring the business model followed by the Assessee for the services rendered to Associated Enterprise ("AE") vis-a-vis Non-AEs; * Disregarding the segmental results of the Assessee and thereby proceeding to consider the margin of the Assessee at the entity level for the transfer pricing analysis. 3. Without prejudice to the other contentions of the Appellant, the Ld. AO/Ld. TPO has failed to appreciate that the international transactions are arm's length even based on the fresh comparability analysis as per the directions of Hon'ble Dispute Resolution Panel ("DRP"), if segmental result pertaining to AE transactions is considered. 4. The learned AO / learned TPO / Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 5. The learned AOI learned TPO/ Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant vis-a-vis the comparable companies." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : CSR Technology India (Private) Limi8ted, the taxpayer, earlier known as SIRF Technology India Private Limited is a subsidiary of CSR Inc., a group company of CSR, engaged in the provision of software development services to CSR Inc. Under a research & development agreement with CSR Inc., CSR Technology undertakes software development services exclusively for CSR Inc. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AE) as under :- S.No. Type of international transaction Method Selected Total value of transaction (Rs.) MAM PLI i. Provision for software development services Transactional Net Margin Method (TNMM) Operating profit/ Operating Cost (OP/OC) 98,789,879 ii. Payment in respect of Import of capital goods TNMM OP/OC 396,052 iii. Reimbursement of expenses TNMM OP/OC 529,616 3. Transfer Pricing Officer (TPO) found the function of the taxpayer and its AE as explained in the TP report by the taxpayer in order. The taxpayer used Transactional Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Private Ltd. vs. ACIT in ITA No.5140/Del/2011 and Honeywell Electrical Devices & Systems India Ltd. vs. ACIT - (2014) 29 ITR (T) 347 (Chennai - Trib.) 8. However, the ld. DR for the Revenue in order to repel the contention raised by the taxpayer supported the decision of AO/TPO/DRP in disregarding the segmental result of the taxpayer contended inter alia that when the taxpayer is providing similar services to the AE as well as non-AE, there cannot be any nonallocation key and the taxpayer has made artificial bifurcation only to raise the profit; that when the taxpayer is doing same business with AE and non-AE, only logical conclusion is that same employees are doing work for providing services to AE and non- AE; that no audited account with detail has been given; that decision rendered by the coordinate Bench of the Tribunal in LG Electronics India Private Ltd. and Honeywell Electrical Devices & Systems India Ltd. (supra) are not applicable to the facts and circumstances of the case. 9. In the backdrop of the aforesaid facts and circumstances of the case, the first question arises for determination in this case is:- "as to whether TPO/DRP have erred in disregarding the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign AE and there is no other transaction of sale to any outsider and also there is no other international transaction. But if there are several unrelated international transactions, as is the case before us and the assessee or the TPO has applied the TNMM in a wrong manner on entity level for testing any of such transactions, then the remedy lies in correcting such mistake rather than drawing legally unsustainable conclusions by taking such mistake as a correct legal position." 11. However, coordinate Bench of the Tribunal in as M/s. LG. Electronics India Private Limited (supra) case held that the sanction is for applying the TNMM only at transactional level and not on entity level. It is further held that TNMM can be correctly applied on entity level if the international transactions are on sale by the taxpayer to its foreign AE and there is no other international transaction of sale to any outsider and also there is no other international transaction. In the instant case, undisputedly, there is no other international transaction. The taxpayer has only minuscule transaction with non-AE, the bifurcation of which has been given at pages 566 & 567 of the paper book. Detail ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39/Bang/2012), available at page 441 of the paper book, while deciding the identical issue held that when there are international transactions of the taxpayer with AE only international transactions are to be adjusted for ALP adjustment. In the instant case also, transaction of the taxpayer with non-AE with which it is operating on different model are not to be taken for benchmarking the international transaction. 17. In view of what has been discussed above, we are of the considered view that AO/TPO/DRP have erred in disregarding the segmental result of the taxpayer by proceeding to consider the margin of the taxpayer at the entity level for the transfer pricing analysis. So, by accepting the TNMM as the most appropriate method and in the face of the fact that the taxpayer was having separate international transaction with its AE, the ALP of the same is to be determined whereas ALP of the other transactions of the taxpayer with non-AE is not to be considered. 18. Even otherwise, TP adjustment is not possible without taking into account the segmental result. As such, TPO/DRP cannot unilaterally adopt entity level result in determining the ALP of international transaction. So, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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